Wine Equalisation Tax Ruling

WETR 2006/1

Wine equalisation tax: the operation of the producer rebate for producers of wine in New Zealand

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Preamble

This document was published prior to 1 July 2010 and was a public ruling for the purposes of former section 105-60 of Schedule 1 to the Taxation Administration Act 1953.

From 1 July 2010, this document is taken to be a public ruling under Division 358 of Schedule 1 to the Taxation Administration Act 1953.

A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes.

If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.

[Note: This is a consolidated version of this document. Refer to the Tax Office Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.]

What this Ruling is about

1. The A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) imposes a tax on sales, importations and certain other dealings with wine which take place on or after 1 July 2000. The tax on wine is referred to in this Ruling as the wine tax although it is also known as the wine equalisation tax (WET).

2. This Ruling explains how the wine tax producer rebate operates for producers of wine in New Zealand that have their wine exported to Australia. It includes explanation about eligibility to claim the rebate, how the rebate is calculated and when and how a claim for the rebate may be made.

3. Unless otherwise stated, all legislative references in this Ruling are to the WET Act or the A New Tax System (Wine Equalisation Tax) Regulations 2000 (WET Regulations).

Date of effect

4. This Ruling explains the Commissioner's view of the law as it applied from 1 July 2005. You can rely upon this ruling on and from its date of issue for the purposes of section 357-60 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

5. If this Ruling conflicts with a previous private ruling that you have obtained, or a previous public ruling, this public ruling prevails. However, if you have relied on a previous ruling, you are protected in respect of what you have done up to the date of issue of this public ruling. This means that if you have underpaid an amount of wine tax you are not liable for the shortfall prior to the date of issue of this later ruling. Similarly, you are not liable to repay an amount overpaid by the Commissioner as a refund.

Background

How does the wine tax work?

6. The broad aim of the WET Act is to impose wine tax on dealings with wine^[1] in Australia. The tax is applied to both Australian produced wine and imported wine. Dealings which attract wine tax are called assessable dealings and can include selling wine, using wine, or making a local entry of imported wine at the customs barrier.

7. The wine tax is normally a once only tax designed to fall on the last wholesale sale. Where wine is sold by wholesale to a reseller, for example, to a distributor, bottle shop, hotel or restaurant, wine tax is calculated on the selling price of the wine excluding wine tax and Australian goods and services tax (GST).^[2] If wine is not the subject of a wholesale sale, for example, it is sold by retail by the manufacturer at the cellar door or used by the manufacturer for tastings or promotional activities, alternative values are used to calculate the tax payable.^[3]

8. Normally for retailers (including bottle shops, hotels, restaurants and cafes) wine tax is included in the price for which the retailers purchase the wine. Most retailers are not entitled to a credit for wine tax included in the purchase price of the wine. The system is designed so that wine tax is built into the retailers' cost base and is then effectively passed on in the price of the wine to the end consumer.

9. Wine tax is calculated at the rate of 29% of the taxable value of the dealing.^[4]

10. Refer to Wine Equalisation Tax Ruling WETR 2004/1 for a detailed discussion on how the wine tax works.

Producer rebates

11. The Australian government provides a rebate of wine tax for producers of rebatable wine that are registered or required to be registered for GST in Australia. From 1 October 2004 to 30 June 2006, the maximum amount of rebate an Australian producer (or group of associated producers) can claim in a full financial year^[5] is A$290,000, effectively offsetting wine tax on A$1 million (wholesale value) of eligible sales and applications to own use per annum.

12. From 1 July 2006, the maximum amount of rebate an Australian producer (or group of associated producers) can claim in a full financial year is A$500,000, which equates to approximately A$1.7 million (wholesale value) of eligible sales and applications to own use per annum.

13. From 1 July 2005, access to the producer rebate has been extended to eligible New Zealand wine producers that have their wine exported to Australia. New Zealand wine producers may apply to the Australian Commissioner of Taxation to become approved New Zealand participants. If approved, a producer can claim the New Zealand wine producer rebate for rebatable wine that has been produced by the producer in New Zealand, exported to Australia and in respect of which the producer can demonstrate wine tax has been paid on or after 1 July 2005.

14. The rebate entitlement is 29% of the approved selling price (in Australian dollars) of the wine received by the New Zealand participant net of any expenses incurred by the New Zealand participant that are unrelated to the production of wine in New Zealand. The maximum amount of rebate a New Zealand producer (or group of associated producers) can claim in a full financial year is A$290,000 for the financial year ending 30 June 2006 and A$500,000 for each financial year thereafter.

15. A New Zealand wine producer may be registered or required to be registered for GST in Australia, in which case the producer can claim the rebate on the producer's business activity statement (BAS). However, a New Zealand producer that is registered or required to be registered for GST in Australia cannot claim the rebate twice in relation the same wine (that is, through the producer's BAS and again under the New Zealand rebate scheme).

Ruling and Explanation

Eligibility

16. For a New Zealand wine producer to be eligible to claim the producer rebate, they must meet a number of requirements, all of which are discussed in detail below.

Approval as a New Zealand participant

17. To be eligible for the rebate, a New Zealand wine producer must be approved as a New Zealand participant.

18. To be considered for approval as a New Zealand participant an entity must apply in writing in the approved form to the Australian Commissioner of Taxation (the Commissioner).^[6] However, to streamline the approval process, the application for approval can be sent by the entity to New Zealand Inland Revenue, which will on-send the application to the Australian Taxation Office. More information about the application form and how to lodge is available from New Zealand Inland Revenue or its website at www.ird.govt.nz.

19. For an entity to be eligible to be approved as a New Zealand participant, the Commissioner must be satisfied that:

•

the entity is a producer of rebatable wine ^[7] in New Zealand; and

•

the rebatable wine has been, or is likely to be, exported to Australia.^[8]

Who is a producer of rebatable wine?

20. A 'producer' of rebatable wine^[8A] is defined as an entity that:

•

manufactures the wine; or

•

supplies to another entity the grapes, other fruit, vegetables or honey from which the wine is manufactured by that other entity on its behalf.^[9]

21. 'Manufacture'^[9A] is defined in section 33-1 to include:

•

production;

•

combining parts or ingredients so as to form an article or substance that is commercially distinct from the parts or ingredients; and

•

applying a treatment to foodstuffs as a process in preparing them for human consumption.

22. This definition of 'manufacture' is inclusive, not exhaustive and extends the ordinary meaning of manufacture. In commenting on the similarly inclusive definition of 'manufacture' in the sales tax legislation,^[10] Murray J stated in Deputy Commissioner of Taxation v. Cohn's Industries Pty Ltd (1978) 9 ATR 479 at 480; 79 ATC 4025 at 4027:

...I am quite unable to see anything which should lead me to the view that the word 'includes' is intended to be, insofar as it is followed by para. (b) exhaustive. It seems to me that para. (a), (b) and (c) of the definition can all be fairly read as intended to extend the ordinary meaning of the term 'manufacture'.

23. The definition of 'manufacture' in the WET Act also uses identical words to the first three paragraphs of the definition of manufacture in the sales tax legislation. The meaning of 'manufacture' has been considered in a number of sales tax cases. The Commissioner considers that the cases that examined that part of the sales tax definition as replicated in the WET Act apply equally to wine tax.

24. In McNichol and Anor v. Pinch [1906] 2 KB 352, Darling J stated at page 361:

...the essence of making or of manufacturing is that what is made shall be a different thing from that out of which it is made.

25. This statement was quoted with approval in Federal Commissioner of Taxation v. Jack Zinader Pty Ltd (1949) 78 CLR 336; (1949) 9 ATD 46. In that case it was held that articles which resulted from the remodelling of fur garments were goods manufactured and sold within the meaning of the Sales Tax Assessment Act (No. 1) 1930-1942 and were liable to tax under that Act. In his judgment Dixon J stated ((1949) 78 CLR 336, at 345):

The argument is answered by the consideration that, according to the conclusion already stated, the process produces a different article. When that consideration is added to the fact that the actual work done and the procedure employed in producing the new, that is the distinct, article is characteristically a manufacturing process, it must follow that the 'goods' are 'manufactured' within the ordinary meaning of that term.

26. The meaning of 'production' in the definition of manufacture was considered by the High Court in Federal Commissioner of Taxation v. Riley (1935) 53 CLR 69. At page 78 Rich, Dixon and McTiernan JJ in their joint judgement stated:

By the statutory definition, manufacture includes production. This description is very wide. It appears to cover all operations conducted for the purpose of bringing tangible things into existence for sale.

27. An entity is also the producer of rebatable wine if it supplies grapes, other fruit, vegetables or honey that it either produces or purchases to a contract winemaker to be made into wine on its behalf.

28. However, an entity that merely purchases bottled wine or bulk wine for bottling is not the producer of rebatable wine and is not eligible for the producer rebate for this wine.

Example 1

29. NZ Wines manufactures its own wine in New Zealand, as well as providing grapes to a contract winemaker to be made into wine. From time to time NZ Wines also purchases bulk wine manufactured by another producer in New Zealand, which it bottles and labels. All of this wine is for export by NZ Wines to Australia.

30. NZ Wines is the producer of the wine it manufactures in New Zealand, as well as the wine made by the contract winemaker on its behalf. However, it is not the producer of the bulk wine it bottles and labels for the purpose of export.

31. As NZ Wines is the producer of wine that has been, or is likely to be, exported to Australia (that is the wine it manufactures in New Zealand, as well as the wine made under contract from its own grapes), it is considered to be a producer of rebatable wine for the purpose of approval as a New Zealand participant.^[11]

32. However, if NZ Wines only imported bottled or bulk wine or purchased bottled or bulk wine from another producer of wine in New Zealand for export NZ Wines would not be a producer of rebatable wine for the purpose of approval as a New Zealand participant.

What is rebatable wine?

33. Wine that is eligible for the producer rebate is referred to as 'rebatable wine'. The following alcoholic products fall within the definition of 'wine' for the purposes of the WET Act provided they contain more than 1.15% by volume of ethyl alcohol:

•

grape wine;

•

grape wine products;

•

fruit wines or vegetable wines; and

•

cider, perry, mead and sake.

34. The alcoholic products listed above are defined in the WET Act.^[12] The definitions and examples of these various products are set out in Appendix A of this Ruling.

35. Alcoholic products with an alcohol content of more than 1.15% by volume of ethyl alcohol, which do not meet the definitions, are subject to either excise duty (if produced in Australia) or customs duty (if imported into Australia). Designer drinks and pre-mixed alcoholic products commonly referred to as Ready-to-Drink products do not usually fall within the definition of wine. Products that are subject to excise or customs duty are not rebatable.

Wine produced in New Zealand

36. For approval as a New Zealand participant, the wine that has been, or is likely to be, exported to Australia must be produced 'in New Zealand'.^[13]

37. 'New Zealand' is defined in the WET Act to mean, 'the territory of New Zealand but does not include Tokelau or the Associated Self Governing States of the Cook Islands and Niue'.^[14]

Example 2

38. NZ Wines supplies grapes to a contract winemaker in Australia. The grapes are made into bulk wine in Australia under contract. The wine is then shipped back to NZ Wines in New Zealand where it is bottled and labelled and subsequently exported to Australia. NZ Wines is considered to be the producer of the wine, but the wine is not produced by NZ Wines in New Zealand. Therefore, with respect to this wine NZ Wines is not a producer of rebatable wine for the purpose of approval as a New Zealand participant.

38A. A wine is not produced 'in New Zealand' if some additional manufacturing processes in the production of the wine occur in Australia, subsequent to its export from New Zealand. For example, if raw wine manufactured 'in New Zealand' undergoes stabilisation, fining, filtering and secondary fermentation in Australia before its bottling for sale, the resultant, finished wine is not produced 'in New Zealand'. The finished bottled wine is not the same wine as that manufactured in New Zealand and exported to Australia.

Rebatable wine has been, or is likely to be, exported to Australia

39. To be approved as a New Zealand participant the Commissioner must be satisfied that the wine produced by the entity in New Zealand 'has been, or is likely to be, exported to Australia'.^[15]

Meaning of export

40. The term 'export' is not defined in the WET Act. Its ordinary meaning is 'to send (commodities) to other countries or places for sale, exchange etc'.^[16]

41. Similarly, exportation refers to '...the sending of commodities out of a country, typically in trade'.^[17]

42. The Federal Court of Australia commented on the meaning of export in Australian Trade Commission v. Goodman Fielder Industries Ltd (1992) 36 FCR 517. At page 523, Beaumont, Gummow and Einfeld JJ stated:

The ordinary meaning of 'export' is to send commodities from one country to another using the verb 'send' as indicating that which occasioned or brought about the carriage of the commodity from one country to another.

43. The Supreme Court of the Northern Territory has considered the term export in the context of the Customs Act, where, like the WET Act, the term is not defined. In Wesley-Smith and Ors v. Balzary (1976-77) 14 ALR 681 Forster J said at page 688:

Export in the first sense no doubt means taking goods out of a proclaimed port or across a low water mark with the intention of landing them at some place beyond the seas.

44. The Commissioner considers that the ordinary meaning, as commented upon in these cases, applies to the use of the word 'export' in the WET Act. A New Zealand producer exports wine to Australia when the wine is physically taken out of New Zealand with the intention that the wine be landed in Australia.

Meaning of Australia

45. Because a New Zealand wine producer must produce rebatable wine that has been or is likely to be exported to Australia to be eligible for approval as a New Zealand participant, it is necessary to establish what constitutes 'Australia'.

46. 'Australia' is defined in the WET Act by reference to section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

47. Australia is defined in section 195-1 of the GST Act as follows:

Australia does not include any external Territory. However, it includes an installation (within the meaning of the Customs Act 1901) that is deemed by section 5C of the Customs Act 1901 to be part of Australia.^[18]

'Likely to be'

48. To be eligible for approval as a New Zealand participant, a wine producer does not necessarily have to have exported wine to Australia. It is sufficient for approval as a New Zealand participant if the Commissioner is satisfied that the rebatable wine the entity has produced in New Zealand is likely to be exported to Australia.^[19]

49. In Australian Telecommunications Commission v. Krieg Enterprises Pty Ltd (1976) 14 SASR 303, Bray CJ considered the meaning of 'likely' in the phrase 'likely to interfere with or damage property'. His Honour said at pages 312-313:

Here we are concerned with the word 'likely' in a statute. As I have said, the ordinary and natural meaning of the word is synonymous with the ordinary and natural meaning of the word 'probable' and both words mean... that there is an odds-on chance of the thing happening. That is the way in which statutes containing the words have usually been construed. ...I think that 'likely' in the sub-section means 'probable' and I think that that means that there is a more than fifty per cent chance of the thing happening.

50. For the purposes of paragraph 19-7(2)(b), the expression, 'likely to be' means that on the balance of probabilities, it can be concluded that the wine is more likely than not going to be exported to Australia.

Approval or refusal of application

51. If the Commissioner is satisfied that an applicant is the producer of rebatable wine in New Zealand that has been or is likely to be exported to Australia, the entity will be approved as a New Zealand participant. Such an entity will be given written notice of the approval, including the date from which the approval has effect.^[20]

52. An entity may request that the date of approval be backdated.

Example 3

53. NZ Wines is a producer of wine in New Zealand. After receiving an order from a wholesale distributor in Australia, NZ Wines recently exported a number of cases of bottled wine to Australia. The wholesale distributor provided a quotation to Customs upon entering the wine into Australia.

54. Until receiving the order from the Australian distributor, NZ Wines sold its wine exclusively in New Zealand and had not anticipated exporting wine to Australia. As such, NZ Wines was not an approved New Zealand participant when the wine was exported.

55. As the wine has been exported to Australia, NZ Wines can apply for approval as a New Zealand participant and have the date of effect of the approval backdated to the date the wine was exported.

56. If an entity is not satisfied with the Commissioner's decision on the date of effect, the entity may have the decision reviewed in accordance with section 111-50 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

57. If the Commissioner is not satisfied that an applicant is the producer of rebatable wine in New Zealand that has been or is likely to be exported to Australia, the entity will not be approved as a New Zealand participant. In these circumstances, the entity will be given written notice of the refusal, including the reasons for the decision.^[21] Refusing to approve an entity as a New Zealand participant is also a reviewable decision under section 111-50 of Schedule 1 to the TAA.

Revocation

58. If at any time the Commissioner becomes aware that an entity no longer meets the requirements for approval as a New Zealand participant, the approval will be revoked. An entity will be notified of such a revocation in writing, including the date from which the revocation has effect and the reasons for the revocation.^[22]

59. Revocation and the date of revocation of approval as a New Zealand participant is also a reviewable decision under section 111-50 of Schedule 1 to the TAA.

60. An entity must notify the Commissioner in writing if it no longer meets the eligibility criteria for approval as a New Zealand participant due to a change in circumstances, for example, if the entity is no longer a producer of rebatable wine in New Zealand. The notification must occur within 21 days of the change in circumstances.^[23] Upon notifying the Commissioner of the change in circumstances the approval will be revoked. An entity will be notified of such a revocation in writing, including the date from which the revocation has effect. This decision is reviewable under section 111-50 of Schedule 1 to the TAA.

Entitlement to claim the rebate

61. If an entity is an approved New Zealand participant, it is entitled to claim the producer rebate for a financial year^[24] for rebatable wine that it produced in New Zealand if:

•

the wine is exported to Australia; and

•

either it or another entity paid wine tax for a taxable dealing with the wine during that financial year.^[25]

62. Unlike eligibility for approval as a New Zealand participant, before an entity is entitled to claim the producer rebate, the wine that has been produced by the participant in New Zealand must have actually been exported to Australia (within the meaning of 'export' set out in paragraphs 40 to 44 of this Ruling).

63. The New Zealand participant does not have to be the exporter of the wine to be able to claim the producer rebate. The requirement that the wine be exported from New Zealand to Australia will be met whether the wine is exported by the New Zealand participant or another entity.

64. The requirement in paragraph 19-5(2)(c) that the New Zealand participant or another entity must have paid wine tax for a taxable dealing with the wine contrasts with the words used in paragraph 19-5(1)(a) which applies to Australian producers and requires that the Australian producer must be liable to wine tax for a taxable dealing with the wine.^[26] The Commissioner considers that the use of the words 'paid wine tax' means that for a New Zealand participant to be eligible for the rebate, the law requires more than the existence of a liability for the wine tax and requires that wine tax for the dealing must have been remitted to the Australian Taxation Office.

65. Where liability for wine tax on wine that is exported from New Zealand to Australia is incurred by an entity other than the New Zealand participant, it may be difficult for the New Zealand participant to establish whether that liability has been met and wine tax on the wine remitted to the Australian Taxation Office.

66. In light of this consideration and of the fact that a New Zealand participant:

•

is required to substantiate a claim for the rebate by providing supporting documents to evidence that wine tax has been included in a taxable dealing with the wine;^[27] and

•

is not eligible to lodge the claim until after the end of the financial year in which the relevant taxable dealing took place,^[28]

the Commissioner considers that it is generally reasonable for the New Zealand participant to assume that wine tax on the wine for which the rebate is being claimed has been remitted to the Australian Taxation Office by the end of the financial year in which the taxable dealing took place. However, it is not reasonable for the New Zealand participant to make this assumption if the participant is aware, or should reasonably have been aware^[29] that the wine tax has not been paid to the Commissioner in respect of that wine (for example, if the entity that has the liability for wine tax is in liquidation).

Exceptions

67. A New Zealand participant is not entitled to a producer rebate for a taxable dealing in the wine if:

•

the wine is exported from Australia after the dealing and at the time of the rebate claim the New Zealand participant knew, or should reasonably have been aware, that the wine was to be so exported;^[30] or

•

a producer rebate has previously been paid for the same wine.^[31]

Should reasonably have been aware

68. The phrase 'should reasonably have been aware' is not defined in the WET Act. However, the Commissioner considers that the test in paragraph 19-10(3)(b) is whether it is likely that an ordinary reasonable person in all of the circumstances of the New Zealand participant would have been aware, at the time of making the claim, that the wine in respect of which the claim is being made was to be exported.

Example 4

69. NZ Wines is an approved New Zealand participant. Bottled cleanskin wine produced by NZ Wines in New Zealand is exported to Australia to a company called All Aussie Exports. NZ Wines deals with All Aussie Exports on a regular basis and is aware that once the cleanskin wine arrives in Australia, All Aussie Exports puts its own label on the wine and exports half of it to various countries. All Aussie Wines pays wine tax on the wine upon importation.

70. NZ Wines claims the rebate in the approved form together with the required supporting documentation (see paragraphs 103 to 108 of this Ruling) in relation to all of the wine that it exports to All Aussie Exports.

71. However, NZ Wines knew that although the wine was subject to a taxable dealing in Australia, part of the wine would be exported from Australia. NZ Wines is not entitled to claim the rebate for that part of the wine that is to be exported from Australia.

Calculation of the producer rebate

72. The maximum amount of producer rebate to which a New Zealand participant is entitled for the financial year commencing 1 July 2005 is A$290,000 and is A$500,000 for each financial year from 1 July 2006.^[32] However, if the New Zealand participant is an associated producer of one or more other producers at the end of a financial year, the maximum amount of producer rebates to which those producers are entitled as a group for the financial year is A$290,000^[33] for the financial year commencing 1 July 2005 and is A$500,000 for each financial year from 1 July 2006.

Associated producers

73. A producer is an associated producer of another producer for a financial year if, at the end of the financial year if:

•

they are 'connected with' each other. They are connected with each other if they would be 'connected with' each other under section 328-125 of the Income Tax Assessment Act 1997 (ITAA 1997) if subsection 328-125(8) of the ITAA 1997 were omitted; or^{[34] [35]}

•

one producer is under an obligation (formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the other in relation to their financial affairs.^[36]

73A. Two producers are associated producers if:

•

each of them is under an obligation (formal or informal), or might reasonably be expected to, act in accordance with the directions, instructions or wishes of the same third entity in relation to their financial affairs.^[37]

73B. Furthermore, a producer is an associated producer of another producer if:

•

one producer is under an obligation (formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of a third producer and the third producer is under an obligation (formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the second producer in relation to their financial affairs.^[38]

74. A New Zealand producer may be associated with one or more New Zealand producers, one or more Australian producers or one or more New Zealand and Australian producers.

Excess claims and offsets

75. If the amount of producer rebate that an entity claims exceeds the amount to which they are entitled for a financial year, they will be liable to pay to the Australian Taxation Office an amount equal to that excess.^[39] The amount payable is treated as if it is wine tax payable at the end of the financial year in which entitlement to the rebate arose.^[40]

76. If any amount of the excess remains unpaid after the time by which it is due to be paid, the New Zealand participant will be also liable to pay a general interest charge (GIC) on the unpaid amount.^[41] The GIC will continue to accrue on a daily compounding basis up to and including the end of the last day on which the excess and the GIC on the excess claim remains unpaid.^[42]

77. The Australian Taxation Office may take action to recover these amounts. This will include offsetting future entitlements to the producer rebate against any amount that remains unpaid.

78. If an entity is a member of a group of associated producers and the rebate claimed by the group for a financial year is more than A$290,000 up until 30 June 2006, or A$500,000 for each financial year thereafter, each member of the group is jointly and severally liable to pay an amount equal to the excess.^[43] However, the entity will not be liable to pay an amount that exceeds the sum of the amounts of producer rebate that they claimed for the financial year.^[44]

79. If an entity has allowed volume rebates or discounts which effectively reduce the price for which wine is sold (see paragraphs 84 to 92 of this Ruling) they will need to adjust the amount of producer rebate that they have claimed for this wine.

80. Volume rebates or discounts allowed on wine for which an entity has already claimed a producer rebate will result in an excess claim of the rebate.

81. If an entity claims in excess of the amount of producer rebate to which they are entitled for a financial year, they should arrange to pay an amount equal to the excess. They can do this by contacting New Zealand Inland Revenue, who will refer the details of the excess claim to the Australian Taxation Office.

Amount of producer rebate

82. The amount of a producer rebate for a New Zealand participant is calculated as:

approved selling price (in Australian dollars) x 29%


Example 5

83.

Approved selling price of the wine

84. The approved selling price of the wine means the price for which the wine was sold by the New Zealand participant net of any expenses unrelated to the production of the wine in New Zealand.^[45] The Commissioner considers this to mean that if the New Zealand participant has incurred any such expenses, the approved selling price must be reduced by the amount of the expenses. If another entity (for example the importer) has incurred these expenses, the New Zealand participant is not required to reduce the selling price in respect of these amounts.

85. The Commissioner considers that 'expenses unrelated to the production of the wine in New Zealand' are those expenses borne by the New Zealand participant that would not be incurred if the wine had been produced in Australia. These expenses may include:

•

costs associated with the exportation of wine from New Zealand and the importation of the wine into Australia such as:

-

transportation;

-

freight;

-

insurance; and

-

agent's fees; ^[46]

•

New Zealand or Australian taxes including customs duties;^[47] and

•

foreign exchange and currency hedging costs.

Example 6

86.

Trade incentives

87. The selling price of the wine by the producer can be affected by trade incentives allowed by the New Zealand participant to customers. Trade incentives are allowed in different circumstances and these include settlement discounts, volume rebates, promotional rebates, co-operative advertising allowances and deferred credits.

88. Trade incentives will bring about a reduction in the selling price if the incentives relate to the sale and the price of the wine. Factors relevant to determining whether or not an incentive reduces the selling price of the wine include:

•

the circumstances surrounding the provision of the incentive;

•

the accounting treatment of the incentive in the financial records of both the New Zealand participant and the customer;

•

the terms of trade between the New Zealand participant and the customer and other sales documentation, such as invoices, incentive claim forms and credit notes; and

•

an objective assessment of the intention of the New Zealand participant and the customer.

89. Examples of incentives which reduce the selling price of wine include:

•

volume rebates and deferred credits - these are rebates that relate directly and solely to the volume or value of the wine sold and are calculated accordingly; and

•

settlement discounts - these are discounts that relate to the value of the wine supplied by the New Zealand participant and are allowed because payment is made in cash or is made promptly.

90. If a New Zealand participant has allowed volume rebates or discounts which effectively reduce the price for which the wine is sold the New Zealand participant will need to account for these volume rebates or discounts when calculating its approved selling price of the wine.

91. Incentives that are provided to subsidise, compensate, reimburse, or reward a customer for carrying out activities or performing services for the New Zealand participant do not reduce the selling price of the wine. This will be the case even if they are based on volume or value and however they may be described.

92. Examples of payments which do not usually reduce the selling price of wine include promotional rebates, advertising rebates and cooperative advertising rebates. These payments generally will not reduce the selling price as they are made to subsidise, compensate or reimburse the customer for advertising expenditure incurred in marketing the product.

Foreign exchange conversion

93. Components that make up the approved selling price that are not expressed in Australian currency are to be treated as if they are amounts of Australian currency^[49] worked out according to the Commissioner's Determination.^[50] The WET Act enables the Commissioner to determine, by legislative instrument, the manner in which any component of the approved selling price that is expressed in a currency other than Australian currency may be converted to Australian currency.^[51] The Commissioner's Determination is set out at Appendix B of this Ruling.

94. The Commissioner's Determination provides New Zealand participants with the following options for converting to Australian currency any component used to determine the approved selling price, depending on whether the component is expressed in New Zealand currency or a currency other than Australian or New Zealand currency.

Option 1 - conversion for components expressed in any foreign currency

95. The conversion under this option is to be calculated by multiplying the value of the component of the approved selling price, expressed in foreign currency, by the inverse of the New Zealand participant's particular exchange rate on the conversion day.

96. The New Zealand participant's particular exchange rate will be either:

•

the foreign exchange rate calculated by the Reserve Bank of Australia;^[52] or

•

the foreign exchange rate agreed to between the New Zealand participant and the recipient of the wine.^[53]

97. The conversion day is the date the New Zealand participant uses to convert foreign currency into Australian currency. This date is the earlier of:

•

the day on which any of the consideration is received by the New Zealand participant for the supply of the wine; or

•

the date the invoice is issued for that supply.

Option 2 - additional option for components expressed in New Zealand currency

98. Approved New Zealand participants may also convert components of the approved selling price that are expressed in New Zealand currency by using a single average rate of conversion for a financial year. The conversion under this option is to be calculated by multiplying the value of the component of the approved selling price expressed in New Zealand currency by the average yearly Reserve Bank of New Zealand (RBNZ) rate.^[54]

99. The average yearly RBNZ rate is the total of the RBNZ average monthly exchange rates for the financial year in which the conversion day occurs, divided by twelve. The Australian Taxation Office will publish on its website (www.ato.gov.au) the average RBNZ exchange rate for each financial year.

Consistent use of exchange rate

100. Whichever foreign exchange rate method an entity chooses, the entity must apply that method consistently.^[55] The Commissioner considers that an entity applies a method consistently if it uses the same method for calculations for a financial year. If an entity switches methods with a view to maximising the producer rebate claim for a financial year, the Commissioner considers the entity is using the method inconsistently and has therefore not complied with the requirements of the Determination. In these circumstances, an entity may have overstated its rebate claim for a financial year.

101. An example of the calculation of approved selling price where the components that make up the approved selling price are expressed in New Zealand currency is set out at Appendix C of this Ruling.

How do you claim the producer rebate?

Approved form

102. The producer rebate is claimed using the approved form, which is sent to the Australian Taxation Office.^[56] However, to streamline the claim process, claim forms and supporting documentation can be sent by New Zealand participants to New Zealand Inland Revenue, which will on-send the claim forms to the Australian Taxation Office. Claim forms and supporting documentation sent to New Zealand Inland Revenue will be taken to have been lodged with the Commissioner on the day that they are received by New Zealand Inland Revenue. More information about the form and how to lodge it, is available from New Zealand Inland Revenue, or its website www.ird.govt.nz.

Accompanied by supporting evidence

103. Subsection 17-10(2A) provides that the rebate claim must be accompanied by such supporting evidence as the Commissioner requires.

104. A New Zealand participant is only entitled to claim the rebate for wine that is produced by it in New Zealand, exported to Australia and in respect of which wine tax has been paid. To evidence that these things have occurred, the Commissioner requires that a New Zealand participant provide the following original supporting documentation with the claim, or copies where it is not possible to obtain originals. These documents will be returned to the New Zealand participant after the claim has been processed.

105. If a New Zealand participant has sold wine to an Australian importer, the supporting documentation must include:

•

the New Zealand sales invoices of the participant; and

•

New Zealand customs export entries as evidence of the export of the wine from New Zealand; and

•

Australian customs import entry numbers as evidence of the importation of the wine to Australia; and either:

-

Australian tax invoices (to substantiate that wine tax has been charged or included in a taxable dealing with wine that is not a customs entry); or

-

wholesalers' statements;^[57] or

-

if the wine is taxed at the customs barrier, Australian customs import entry numbers (to substantiate a local entry); and

•

a worksheet showing how the rebate claim has been calculated.

106. If a New Zealand participant has sold wine to another entity in New Zealand who sells the wine to an Australian importer, the supporting documentation must include:

•

the New Zealand sales invoices of the New Zealand participant; and

•

New Zealand sales invoices for sales of the wine by the other entity in New Zealand to the Australian importer; and

•

New Zealand customs export entries as evidence of the export of the wine from New Zealand; and

•

Australian customs import entry numbers as evidence of the importation of the wine to Australia; and either:

-

Australian tax invoices (to substantiate that wine tax has been charged or included in a taxable dealing with wine that is not a customs entry); or

-

wholesalers' statements;^[58] or

-

if the wine is taxed at the customs barrier, the Australian customs import entry numbers (to substantiate a local entry); and

•

a worksheet showing how the rebate claim has been calculated.

107. If a New Zealand participant has imported the wine into Australia and sold the wine in Australia, the supporting documentation must include:

•

New Zealand customs export entries as evidence of the export of the wine from New Zealand; and

•

Australian customs import entry numbers as evidence of the importation of the wine to Australia; and either:

-

Australian tax invoices of the New Zealand participant (to substantiate that wine tax has been charged or included in a taxable dealing with wine that is not a customs entry); or

-

if the wine is taxed at the customs barrier, the Australian customs import entry numbers (to substantiate a local entry); and

•

a worksheet showing how the rebate claim has been calculated.

108. If an entity is claiming rebates on wine sold by an Australian distributor, other than the importer, on the basis that the distributor has paid wine tax on the wine (the wine not having been subject to wine tax prior to the sale by the distributor), the following additional documentation is required:

•

the distributor's purchase invoice of the wine; and either:

-

the distributor's Australian tax invoices (to substantiate that wine tax has been charged or included in a taxable dealing with the wine by the distributor); or

-

wholesaler's statement^[59] from the distributor.

Timing

109. Although entitlement to the rebate arises in respect of an eligible taxable dealing immediately before the end of the financial year in which the dealing occurs, the WET Act states that the Commissioner may determine, by legislative instrument, when claims for the rebate may actually be made.^[60]

110. In accordance with the Commissioner's Determination,^[61] a New Zealand participant may claim the producer rebate using the approved claim form and with the relevant substantiating documents after the end of the financial year in which entitlement to the rebate arises.

111. The Commissioner's Determination is set out at Appendix E of this Ruling.

112. The producer rebate claim must be made within four years of the time when the rebate entitlement arises.^[62]

113. A producer can make a claim for more than one financial year on the same claim form provided it is after those financial years have ended.

A$200 exclusion

114. A New Zealand participant cannot claim a producer rebate for amounts totalling less than A$200.^[63] However, claims may be aggregated to reach the A$200 minimum amount. This is also subject to the four year time period referred to in paragraph 112 of this Ruling.

If the claim is disallowed

115. The Commissioner can decide to disallow in whole, or in part, a New Zealand participant's rebate claim. In the event a claim is disallowed, the Commissioner must notify the New Zealand participant of this in writing.^[64]

116. Disallowance of a claim for the rebate either in whole, or in part, is a reviewable wine tax decision in accordance with section 111-50 of Schedule 1 to the TAA.

What records do you need to keep and how long do you need to keep them?

117. If a New Zealand participant is entitled to a producer rebate, the participant is required to keep records of all transactions that relate to the rebate claim for a period of 5 years after completion of the transactions or acts to which the rebate claim relates.^[65]

118. The records must be in English or readily accessible and convertible into English.^[66]

Detailed contents list

119. Below is a detailed contents list for this Wine Equalisation Tax Ruling:

Commissioner of Taxation
22 November 2006

Appendix A

Wine Equalisation Tax

Set out below are the definitions of alcoholic products for the purposes of the WET Act. The definitions incorporate the requirements of the regulations set out in the A New Tax System (Wine Equalisation Tax) Regulations 2000.^[67] The wine equalisation tax applies to alcoholic products which satisfy the definitions and contain more than 1.15% by volume of ethyl alcohol. Some examples of products that satisfy the various definitions and products that do not are provided - the examples are only covered by the definitions where they meet the requirements in the column on the left. Alcoholic products containing more than 1.15% by volume of ethyl alcohol that are not covered by the wine equalisation tax are subject to the excise/duty regime.

Appendix B

Wine Equalisation Tax New Zealand Producer Rebate Foreign Exchange Conversion Determination 2006

Under subsection 19-15(1B) of the A New Tax System (Wine Equalisation Tax) Act 1999, I make the following determination:

Citation

1. This determination may be cited as the Wine Equalisation Tax New Zealand Producer Rebate Foreign Exchange Conversion Determination 2006.

Commencement

2. This determination commences on 1 July 2006 or the commencement of Schedule 4 to the Tax Laws Amendment (2005 Measures No. 4) Act 2005, whichever is the later.

Application of determination

3. This determination applies to approved New Zealand participants that are required to calculate the approved selling price of their wine in Australian currency, when one or more components of the approved selling price are expressed in a currency other than Australian currency.

Note: For approved New Zealand participants, the amount of a WET producer rebate is calculated using the approved selling price of their wine.

Definitions

4.(1) The following terms are defined for the purpose of this determination:

•

RBA rate means the foreign exchange rate calculated by the Reserve Bank of Australia (RBA) when the New Zealand participant works out the value of the component used to determine the approved selling price on a conversion day:

(a)

that is a RBA business day, then the RBA rate is the unit of foreign currency per $A calculated by the RBA at 4:00pm Australian Eastern time on that RBA business day, and

(b)

that is not a RBA business day, then the RBA rate is the unit of foreign currency per $A calculated by the RBA at 4:00pm Australian Eastern time of the previous RBA business day.

•

New Zealand participant's agreed rate means a foreign exchange rate agreed to between the New Zealand participant and the recipient of the wine. The agreed rate only applies for sales made under the agreement and for the period of the agreement applying to the Australian financial year in which the producer rebate is being claimed.

•

conversion day is the date you use to convert foreign currency into Australian currency for wine equalisation tax purposes, and is the earlier of:

(a)

the day on which any of the consideration is received by the New Zealand participant for the supply of the wine (the receipt date); or

(b)

the invoice date.

•

RBA business day means a day that the head office of the RBA is open for business.

•

Reserve Bank of Australia means the body corporate continued in existence under the Reserve Bank Act 1959.

•

average monthly RBNZ rate means the average of the RBNZ rate for a particular month calculated by the Reserve Bank of New Zealand (RBNZ) at 11:10am New Zealand time on the last RBNZ business day of that month.

•

RBNZ rate means the foreign exchange rate calculated by the RBNZ that is the unit of Australian currency per $NZ calculated by the RBNZ at 11:10am New Zealand time on that RBNZ business day.

•

RBNZ business day means a day that the head office of the RBNZ is open for business.

•

Reserve Bank of New Zealand is the body corporate continued in existence under the Reserve Bank of New Zealand Act.

(2) Other terms in this determination have the same meaning as in the A New Tax System (Wine Equalisation Tax) Act 1999.

Manner in which the conversion to Australian currency may be made

Option 1 - conversion for components expressed in any foreign currency

5. In working out the value of the component used to determine the approved selling price, you convert the value of the component expressed in a foreign currency (including New Zealand currency) on a conversion day in accordance with the following formula:

Value of component expressed in a foreign currency x (1 / the New Zealand participant's particular exchange rate on the conversion day )


where:

•

the New Zealand participant's particular exchange rate is the RBA rate or the New Zealand participant's agreed rate , whichever is applicable; and

•

the conversion day is the date that the foreign currency is converted into Australian currency for wine equalisation tax purposes.

Option 2 - additional option for components expressed in New Zealand currency

Where the value of the component used to determine the approved selling price is expressed in New Zealand currency, then in working out the value of that component you have the option of converting the value on a conversion day in accordance with the following formula:

Value of component expressed in New Zealand currency ($NZ) x ( average yearly RBNZ rate )


where,

•

average yearly RBNZ rate is the total of the average monthly RBNZ rates for each month in the Australian financial year in which the conversion day occurs, divided by twelve; and

•

the conversion day is the date that the New Zealand currency is converted into Australian currency for wine equalisation tax purposes.

6. You must use your particular exchange rate and conversion option consistently.

Dated this 23rd day of March 2006

Stephen Neil Olesen

Deputy Commissioner and Delegate of the Commissioner

Appendix C

Example: calculation of approved selling price in Australian currency where the components that make up the approved selling price are expressed in New Zealand currency

Kiwi Wines is a wine producer that manufactures wine in New Zealand. Several shipments of wine are sold to an Australian importer during the 2006-07 financial year. The importer pays wine tax on the wine at importation. The invoice prices, expressed in New Zealand dollars, include expenses for freight and insurance to transport the wine to the New Zealand shipping dock. The importer meets the shipping costs to Australia.

Kiwi Wines invoices the Australian importer for the wine:

Note : expenses of freight and insurance incurred by the New Zealand participant are excluded from the invoice price as the expenses are unrelated to the production of the wine in New Zealand.

Options available to convert the invoice amounts to Australian dollars

The invoice date for each sale must be used as the conversion day as the invoice date occurs before the date payment was received.

Method 1 - the RBA rate

Assume the following RBA exchange rate for a unit of New Zealand currency per Australian dollar:

Conversion to Australian currency:

Method 2 - the agreed rate

Assume that all sales were made under the same agreement and that for the period of the agreement in which the sales were made the agreed exchange rate for a unit of New Zealand currency per Australian dollar was 1.0755.

Conversion to Australian currency:

Note : Where the New Zealand participant and the recipient of the wine are associates, the agreed rate should reflect a rate agreed to by parties dealing at arm's length. Where the agreed rate does not apply, you need to select The RBA rate or the average yearly RBNZ rate , if applicable.

Method 3 - average yearly RBNZ rate

Assume the average yearly RBNZ rate for a unit of Australian currency per New Zealand dollar is calculated to be 0.9390 for the 2006-07 financial year.

In this example Kiwi Wines may wish to use the average yearly RBNZ rate to maximise its rebate claim.

Appendix D

Statement for sales of New Zealand wine for the purposes of the A New Tax System (Wine Equalisation Tax) Act 1999.

Name of entity making statement

Australian Business Number

Address

Shipment details of New Zealand wine to Australia (* if known)

New Zealand producer's name

Address

Shipment/order number *

New Zealand export permit number *

Australian customs import entry number *

Date of receipt of shipment

Details of wine imported/purchased

Statement

(Insert name of entity making statement)............hereby states that:

1. the following sales of the New Zealand wine detailed above have been sold into the Australian domestic market at a price that includes wine equalisation tax; and

2. the wine has not been exported from Australia.

Sales of wine for the period ............ in respect of the financial year ended 30 June...........

Signature details

Name of person authorised to make this statement........................

Signature of person authorised to make this statement..................

Date......

Note: This statement may only cover one shipment/order number.

Appendix E

Wine Equalisation Tax New Zealand Producer Rebate Claim Lodgment Determination 2006

Under subsection 17-10(2B) of the A New Tax System (Wine Equalisation Tax) Act 1999, I make the following determination:

Citation

1. This determination may be cited as the Wine Equalisation Tax New Zealand Producer Rebate Claim Lodgment Determination 2006.

Commencement

2. This determination commences on 1 July 2006 or the commencement of Schedule 4 to the Tax Laws Amendment (2005 Measures No. 4) Act 2005, whichever is the later.

Application of determination

3. This determination applies to approved New Zealand participants entitled to claim the wine producer rebate and sets out the time when the claim for the rebate may be made.

Definitions

4. Terms in this determination have the same meaning as in the A New Tax System (Wine Equalisation Tax) Act 1999.

When the claim may be lodged

5. Where an approved New Zealand participant is entitled to make a producer rebate claim, the claim may be made at any time after the entitlement to the rebate arises and within 4 years after that entitlement arises.

Note: Entitlement to the producer rebate arises immediately before the end of the Australian financial year in which the relevant taxable dealing takes place.

Dated this 23rd day of March 2006

Stephen Neil Olesen

Deputy Commissioner and Delegate of the Commissioner

Not previously issued in draft form

References

ATO references:
NO 2006/6905

Related Rulings/Determinations:

TD 2006/10
WETR 2009/1
WETR 2009/2
GSTR 2005/2

Subject References:
assessable dealing
associated producers
application to own use
approved form
approved selling price
backdated approval
claim lodgement
eligible producer
export
foreign exchange
manufacture
New Zealand participant
producer of rebatable wine
producer rebate
rebatable wine
record keeping
revocation of approval
substantiation
supporting evidence
taxable value
trade incentives
wholesale sale
wine
wine tax

Legislative References:
ANTS(WET)A 1999
ANTS(WET)A 1999 5-5(3)
ANTS(WET)A 1999 17-10(2A)
ANTS(WET)A 1999 17-10(2B)
ANTS(WET)A 1999 17-10(3)
ANTS(WET)A 1999 17-15
ANTS(WET)A 1999 17-45
ANTS(WET)A 1999 19-5(1)
ANTS(WET)A 1999 19-5(1)(a)
ANTS(WET)A 1999 19-5(2)
ANTS(WET)A 1999 19-5(2)(c)
ANTS(WET)A 1999 19-7
ANTS(WET)A 1999 19-7(1)
ANTS(WET)A 1999 19-7(2)
ANTS(WET)A 1999 19-7(2)(a)
ANTS(WET)A 1999 19-7(2)(b)
ANTS(WET)A 1999 19-7(6)
ANTS(WET)A 1999 19-8
ANTS(WET)A 1999 19-9
ANTS(WET)A 1999 19-10(3)
ANTS(WET)A 1999 19-10(3)(b)
ANTS(WET)A 1999 19-10(4)
ANTS(WET)A 1999 19-15
ANTS(WET)A 1999 19-15(1B)
ANTS(WET)A 1999 19-15(1C)
ANTS(WET)A 1999 19-15(1C)(a)
ANTS(WET)A 1999 19-15(1C)(b)
ANTS(WET)A 1999 19-20(1)(a)
ANTS(WET)A 1999 19-20(1)(b)
ANTS(WET)A 1999 19-20(1)(c)
ANTS(WET)A 1999 19-20(2)
ANTS(WET)A 1999 19-20(3)
ANTS(WET)A 1999 19-25(1A)
ANTS(WET)A 1999 19-25(2)
ANTS(WET)A 1999 19-25(3)
ANTS(WET)A 1999 19-25(4)
ANTS(WET)A 1999 31-1
ANTS(WET)A 1999 31-2
ANTS(WET)A 1999 31-3
ANTS(WET)A 1999 31-4
ANTS(WET)A 1999 31-5
ANTS(WET)A 1999 31-6
ANTS(WET)A 1999 31-7
ANTS(WET)A 1999 33-1
ANTS(WET)R 2000 31-2.01
ANTS(WET)R 2000 31-4.01
ANTS(WET)R 2000 31-6.01
ANTS(GST)A 1999
ANTS(GST)A 1999 195-1
ITAA 1997 152-30(a) (repealed)
ITAA 1997 152-30(b) (repealed)
ITAA 1997 152-30(c) (repealed)
ITAA 1997 152-30(d) (repealed)
ITAA 1997 152-30(e) (repealed)
ITAA 1997 328-125
ITAA 1997 328-125(8)
TAA 1953 70(1)(e)
TAA 1953 70(2)
TAA 1953 Sch 1 105-60 (repealed)
TAA 1953 Sch 1 105-80(1)
TAA 1953 Sch 1 111-50
TAA 1953 Sch 1 357-60
TAA 1953 Sch 1 Div 358
Sales Tax Assessment Act (No. 1) 1930 3
Sales Tax Assessment Act (No. 1) 1930-1942
Customs Act 1901
Customs Act 1901 5C
Tax Laws Amendment (2005 Measures No. 4) Act 2005 Sch 4
Reserve Bank Act 1959
Reserve Bank of New Zealand Act

Case References:
Australian Telecommunications Commission v. Krieg Enterprises Pty Ltd
(1976) SASR 303
(1976) 27 FLR 400

Australian Trade Commission v. Goodman Fielder Industries Ltd
(1992) 36 FCR 517
DCT v. Cohn's Industries Pty Ltd
(1978) 9 ATR 479
79 ATC 4025
FCT v. Riley
(1935) 53 CLR 69
Federal Commissioner of Taxation v. Jack Zinader Pty Ltd
(1949) 78 CLR 336
(1949) 9 ATD 46
McNicol & Anor v. Pinch
[1906] 2 KB 352
Wesley-Smith and Ors v. Balzary
(1976-77) 14 ALR 681

Other References:
Advanced guide to capital gains tax concessions for small business
Macquarie Dictionary 3rd edition
Wine Equalisation Tax New Zealand Producer rebate Foreign Exchange Conversion Determination 2006
Wine Equalisation Tax New Zealand Producer Rebate Claim Lodgment Determination 2006

Draft

WETR 2006/1 History Draft Addendums
Date	Version	Change
	27 November 2013	Draft Consolidated Ruling	Draft Addendum